Internet May Lower Curtain on Movie Theaters

The 87th annual Academy Awards will be presented by the Academy of Motion Picture Arts and Sciences on Feb. 22 at the Dolby Theatre in Hollywood. That’s a long and impressive history of celebrating achievements in film.

But L.A.’s crowning jewel – the venerable motion picture industry – is at great risk if it does not recognize that consumer power, fueled by rapid technological and societal change, is increasingly a game-changer for many traditional industries.

As exemplified by the recent meteoric rise of ridesharing businesses such as Uber and Lyft and room-rental service Airbnb, online platforms have allowed consumers to exercise their power in novel ways – including in the motion picture industry. If the traditional incumbents do not strategically respond to these trends, they risk being run over by the consumer train, rather than driving it. (No pun intended, taxi drivers.)

Over the last few years, the distribution of motion pictures has gone through a fundamental transformation. The primary channel has historically been the movie theater, and for the last few decades DVD distribution has been a profitable secondary channel. However, with the widespread availability of high-bandwidth Internet connectivity, today a consumer can easily download movies via services such as iTunes and Amazon Prime, and watch them on an ever-broadening range of media players and mobile devices.

Other factors – including a new crop of critically acclaimed TV shows, the rise of Redbox, and the high cost of a night at the movies – are also driving consumers out of movie theaters and into the privacy of their homes. The Hollywood Reporter said: “The number of people going to the movies in 2014 in North America slipped to its lowest level in two decades. According to preliminary estimates, roughly 1.26 billion consumers purchased cinema tickets between Jan. 1 and Dec. 31. That’s the lowest number since 1.21 billion in 1995 and not that far ahead of 1994 (1.24 billion).” These are signs that theaters, the bread and butter of movie distribution, are being dangerously encroached on by digital distribution channels.

To examine how the physical distribution of movies is giving way to digital distribution, my colleagues from Pepperdine University’s Graziadio School of Business and Management and I conducted research that tracked movie release dates; prices for DVDs; and three download services, iTunes, Amazon and YouTube, for a sample of 91 movies released in theaters from 2012 to 2014. We found that during this period, the digital download release window – the time between theatrical release and availability for download – went down from about 255 to 114 days, converging with DVD release at the end of 2014.